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Yellen reaches no breakthrough in Poland tax talks, says more work needed

Stock Markets May 16, 2022 02:56PM ET
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© Reuters. Treasury Secretary Janet Yellen testifies during the Senate Banking, Housing, and Urban Affairs Committee hearing titled “The Financial Stability Oversight Council Annual Report to Congress,” in Dirksen Senate Office Building in Washington, D.C.,U.S.,

By David Lawder

WARSAW (Reuters) -U.S. Treasury Secretary Janet Yellen said there was no breakthrough in talks on Monday to persuade Poland to implement a 15% global corporate minimum tax and more work was needed to address Warsaw’s concerns.

Poland is the lone holdout in the European Union's implementation plan for the minimum tax after it vetoed a compromise in April to launch the 137-country agreement reached last October aiming to end a competitive downward spiral in corporate tax rates. Poland's acceptance is essential for the deal to proceed.

"We strongly believe it's in the interest of Poland to be part of this so we've had very good, frank discussions," Yellen told reporters after meeting with Polish Prime Minister Mateusz Morawiecki, Polish Finance Minister Magdalena Rzeczkowska and central bank governor Adam Glapinski in Warsaw.

Yellen said she hoped Poland would come on board with the EU plan "in the not too distant future."

But she added that she did not think it was practical "to have any kind of strong link between" the global minimum tax and the other pillar of global tax negotiations, a reallocation of some taxing rights for large, highly profitable multinationals to “market countries” where their services and products are sold.

Rzeczkowska has sought a "legally binding" link between the two, raising concerns that if the more complicated tax reallocation fails, the global minimum tax would burden international businesses in the country and may cut revenues.

For some countries participating in the Organisation for Economic Co-operation and Development's negotiations, the reallocation plan is more desired, allowing them to collect revenue from U.S. technology giants such as Google owner Alphabet Inc (NASDAQ:GOOGL.O), Facebook (NASDAQ:FB) owner Meta Platforms Inc (FB.O), Amazon.com Inc (NASDAQ:AMZN.O) and Apple Inc (NASDAQ:AAPL.O).

But the reallocation pillar was not part of the October deal and its terms need further negotiations. French Finance Minister Bruno Le Maire, current chair of EU finance ministers, has expressed scepticism over those arguments amid legal disputes between Poland and the EU.

REVENUES DISPUTED

The United States agrees with the EU Tax Observatory’s estimate https://www.taxobservatory.eu/wp-content/uploads/2021/10/Note-2-Revenue-Effects-of-the-Global-Minimum-Tax-October-2021.pdf that the minimum tax would bring Poland an extra 2 billion euros ($2.08 billion) in annual revenue – paid by big multinational companies, not Polish domestic firms - and argues this could help defray the high costs of hosting Ukrainian refugees fleeing the Russian invasion.

Yellen said the Polish officials “have a more pessimistic view that we need to work through” on the revenue estimate and some views on ways to link reallocation of taxing rights to the minimum tax that the Treasury will study.

A statement from the Polish prime minister's office made no mention of the tax deal but focused on coordinating international efforts to put pressure on Russia to end its war in Ukraine and reducing dependence on Russian energy.

"Poland will continue to call for further tightening of EU sanctions, especially in the energy, finance, transport and services sectors," it said. "We must reduce Russia's economic and military potential as soon as possible."

After the talks in Warsaw, Yellen is due to meet EU officials in Brussels and a Group of Seven finance leaders in Germany on Thursday and Friday.

U.S. UNCERTAINTY

Yellen needed to reassure Polish officials about growing uncertainties over U.S. implementation of the global minimum tax, said Manal Corwin, head of KPMG's Washington national tax practice and a former U.S. Treasury official.

The U.S. Congress needs to approve changes to the current 10.5% U.S. global overseas minimum tax known as "GILTI," raising the rate to 15% and converting it to a country-by-country system.

The changes were initially included in U.S. President Joe Biden's sweeping social and climate bill, which stalled last year after objections from centrist Senate Democrats.

But prospects for a slimmed-down spending package with the tax changes look increasingly difficult as midterm congressional elections approach and as lawmakers voice concerns about more spending amid high inflation.

Corwin said lack of U.S. implementation will likely not halt the other 136 countries from proceeding, especially if Poland can be brought on board with EU implementation. Pressure for U.S. implementation would ultimately build as the system would siphon some tax revenues to other countries, she said.

($1 = 0.9593 euro)

Yellen reaches no breakthrough in Poland tax talks, says more work needed
 

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Comments (5)
Ken Roth
Ken Roth May 16, 2022 11:38AM ET
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Poland deserves a lot of credit for helping Ukraine refugees and for the immidiate support of ukraine. Lets not be too harsh on them
Frank Garner
Frank Garner May 16, 2022 8:02AM ET
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This global socialist should be replaced !
Peter Galik
Peter Galik May 16, 2022 6:49AM ET
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Increasing corporate taxes in Poland will make Poland less attractive to the flow of capital. Socialist thinking global elites want to have ever increasing choke and control on individual and international markets.
Chinsect Stomper
Chinsect Stomper May 16, 2022 6:49AM ET
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It also doesn't hurt the largest multinationals that will have carve outs and backroom kickbacks. It just makes it that much harder for anyone else to compete.
David CA
ILoveQE May 16, 2022 6:14AM ET
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I would be careful Poland. Sounds like sanctions are coming down the pike.
tom paj
tom paj May 16, 2022 3:47AM ET
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so, she is proposing Poland to increase corporate tax and compete with cheaper workforce instead..., what a rude proposition...
 
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